Why Apple is Growing Its Bank Account

Ben Bajarin / October 11th, 2013

During my conversation with Benedict Evans as we recorded the 4th episode of our podcast, we got to discussing some competitive players in the mobile market. During this conversation Benedict brought up how aggressive Samsung is with a portion of their marketing budget which goes to commissions to sales reps who sell their devices. Now while Samsung does make a good sum of money and has had record quarters over the past few years, their marketing budget is astronomically high. The reason for this, as I point out in the podcast, is that Samsung has a nearly limitless bank account. Samsung, like LG, is backed by their nation state of South Korea. After I made this point, Benedict added that so is Huawei, and of course several other Chinese ODMs, who are also backed by their nation state. When there is a guarantee of a cash trove behind you, it is possible to make business decisions that perhaps other companies without such a wealthy backer would make. In essence the rules for spending may simply be different for a company like Samsung and other Asian OEMs / ODMs who have nation state backing.1

With this backdrop in mind I propose a theory.2 Perhaps Apple is building its bank account, which is now estimated at about $150 billion with this competitive point in mind. Apple has no guarantee from their nation state who will keep them in business if all goes down the tubes where a number of their competitors do have this guarantee. 3

So perhaps, Apple growing its bank account is less about what companies they can buy but more about the nature of their competitors who have what is in essence very large bank accounts as well. If we understand the competitive nature of this point, then it makes it easier to grasp and support the idea that Apple should not only hold onto its cash but should also keep building it. Perhaps Apple is building for itself the same sort of financial backing that is guarantee to a number of its prime competitors by their nation states.

Now, while I don’t offer this up as a point that they should just sit on all this cash for this reason. Of course, using it for dividends, or investments in long term strategic RND and CapEx, etc, are all important. But I do think we should think about this competitive point as to why the cash matters and should not dramatically be made smaller.

Perhaps by building this bank account it allows Apple to play along the same rules as their competitors who have nation state financial backing. One other very important point that can not be missed is that this bank account they are building allows them to be patient and more deliberate with their market moves. Which, in my opinion, can not be underestimated.

  1. The backing of nation states to certain companies is worth a much deeper analysis as it relates to the competitive landscape. []
  2. Feel free to offer alternate theories as well, I’m just lobbing this one out there []
  3. Chart of Apple’s projected cash reserves. Although $200 billion is unlikely for this year, it seams reasonable for 2014 []

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio
  • TheEternalEmperor

    Only Apple could have too much money.

  • nuttmedia

    An interesting notion. In practice, I imagine state backing is not without its own level of ballast, particularly for those that are also publicly traded.

    Stated more generally, the cash serves as dry powder to further their ability to compete. Few, if any, players can wield the same leverage in terms of scale and terms with suppliers and manufacturing partners as Apple. Working capital flexibility goes entirely to Tim Cook’s DNA and in the mobile computing industry, it is a strategic imperative.

    As the graveyard of mobile device makers demonstrate, one’s fortune can turn on a dime. The ability to dictate terms of competition is worth far more than the value of the pile of gold that enables it.

  • Jared Porter

    May I assume that these sales commissions, or “Spiffs”, that Samsung pays filter down to the individual sales’ associates at the carrier’s (e.g. AT&T) or retailers’ (e.g. Best Buy) sales floor? Does Apple pay salespeople at third-party vendors spiffs or commissions? I assume from the discussion that Apple does NOT pay out commissions. Since these sales people have enormous influence on customers’ purchasing decisions, shouldn’t this practice be more generally publicized in the business and tech press? If this is truly the case that Samsung and not Apple pays out these kinds of commissions, then I think it is amazing that Apple still manages to garner the larger percentage of sales at the three largest carriers in the US (against such competing headwinds as staff sales commissions which will definitely introduce strong, undisclosed bias in favor of Samsung). I would love to hear from any AT&T or Best Buy sales’ personnel if they receive spiffs for pushing Samsung, and if so, hear this point raised more in the American tech and business press. It seems to me that if third-party vendor sales people (e.g. AT&T or Best Buy staff), are receiving commissions in representing products, that the presence of possible commissions should be disclosed as it is a probably conflict of interest.

    • benbajarin

      You are correct Apple does not pay spiffs. This does not get enough attention either in the competitive analysis. Despite the spiffs, the iPhone outsells Galaxy phones.

    • TheEternalEmperor

      I’m going to say no to Apple spiffs. No insider knowledge, but if Apple did 50% of the things that Samsung did, they would be hung out to dry by every pundit in America.

      Paying salespeople to push their products?
      Prying into secret documents?
      Gaming benchmarks?
      Region locking devices?
      Curved phones?

      Look at the heat Apple got for having the first 64bit mobile processor

      Just imagine those negatives.

      • benbajarin

        Apple does not pay spiffs. You are correct and I am certain of this.

    • Mel Gross

      Samsung and Microsoft are known to give spiffs. Apple is known to not give spiffs. You can find articles about this in several business publications over the years if you look.

  • FinanceNotMarketing

    Ben, you’re way off. Three reasons why Apple is building cash reserves:
    1. Bankruptcy: Nearly going bankrupt changes your perspective on cash reserves. Shareholders, boards and leaders never really get over it. And finance departments are changed forever. It’s not just Apple. Other companies have been negatively impacted by near-bankruptcy for a long time.
    2. Foreign profits: $100B of Apple’s reserves are held outside the USA. Apple tries to spend it by opening retail stores around the world and paying Chinese suppliers, but they can’t spend it fast enough. But for Apple, their money sits there, waiting for a repatriation tax holiday. So in reality, Apple only has $50B to play with, which might sound like a lot to many of us, but in Apple’s case, see #1 above.
    3. Apple doesn’t know what to do with it’s foreign reserves. Meanwhile, other companies put their foreign profits to work (MSFT spent $7+B of its foreign reserves to buy Nokia, Intel Capital invested $4.7B in depressed Europe companies, perhaps more in other geographies). Apple will be hurt by its lack of know-how to put its foreign reserves to work in the same way the rest of the industry is doing.

    • benbajarin

      I’m surprised you discount the global playing field and the backing of the nation state for Apple’s competitors so much. Perhaps address why you believe this is a non-issue since that was the crux of my position. I feel it changes the competitive landscape dramatically.

      • FinanceNotMarketing

        Your thesis is that government-backed companies have less worries about cash reserves because they can always access easy financing when necessary. You’re making a lot of assumptions:
        1. USA doesn’t provide government bailouts or financing (in reality, from Lockheed to GM, the USA does it all the time). Therefore, no difference between companies operating in the USA or Asia.
        2. Getting money from a government source is better than open market sources (in reality, Apple just completed the largest debt issuance in history. Why? Because it was CHEAP money.) Very efficient, hard to beat. Once again, no difference, perhaps even an edge to USA companies.
        3. At some point, Apple will be projected to burn through $150+B in cash to stay competitive. Under what circumstances would that happen? (in reality, there are no scenarios)

        Sorry, the argument has no merit.

        • benbajarin

          So, I think you mis-understand the position Samsung and others are in. It is not as though they are getting money from the gov’t, they still play the open market game. Only that their government will go to length’s to ensure their success. Your dismissal of this understanding of how these global companies work seems to be suspect.

          Of course, I agree the open market is better, that is what Apple is doing. Apple is in no danger, I am not worried about that. They are the healthiest company I analyze and I analyze them all.

          To your 1pt. I thought about this but do you honestly believe the US gov’t would bail Apple out?

          The issue of the cash reserves is runway. If you know you have it, you make certain decisions both with short term and with long term thinking. If you don’t know you have it you operate a different way. No head of a large company would disagree with this point.

          So my point, is both to the competitive nature of this landscape, the runway necessary to be a company / invest in long term initiatives and have the patience to outlast market bumps, move tech though the appropriate adoption cycles / diffusion of innovations, and have the wherewithal to not have to take drastic measures (i.e HTC, Dell, RIM, etc.).

          I’m still not exactly sure of your point or the crux of your position but I feel we have a fundamental mis-understanding from our respective points of view.

          • FinanceNotMarketing

            Ben,
            I understand your point completely. I think it’s a minor point compared to those I’ve offered.

            “Only that their government will go to length’s to ensure their success.”
            Such as??

            If you mean subsidies, low-cost loans, tax breaks, trade barriers, demand guarantees, and so on, the same thing goes on here. I’m sure you’ve heard of ‘too big to fail’. Didn’t the White House just step in on the Samsung-Apple suit?

            I would say the USA government goes to great lengths to ensure a level playing field and perhaps even the success of companies it deems important.

            And when you accept that, then your entire argument disappears. And the other things I mentioned become the real reasons Apple is hoarding cash.

          • benbajarin

            Yes that happens here. However, and my point is hard to make because it requires a much deeper understanding of the global fields. What the nation state provides to Samsung is VERY different than what our country does for businesses. It is well beyond just simple economics but deeper tied to how a company is actually intertwined with a nation.

            There is a lot to this that I am yet to share publicly but the long and short of it is that it is a very different situation nation state wise with approved Chinese OEMs and Samsung and LG than here in the US. It is the understanding with that backdrop in mind and the integrated-ness of nations and companies in those regions to which I am stating this point.

          • FinanceNotMarketing

            OK, so you have a lot more information than you can share. It would be interesting to hear more about it.
            Let me share a quick anecdote and hopefully explain why I dismiss the nation-state argument so easily. I worked at a large tech company who had tried numerous times to penetrate China market. We were told we could never do it because the local companies were owned by the Chinese government, received tons of subsidies and support, and we could never win. And the market share data showed that only Chinese companies were in the top 10. No foreign brand could crack it.
            So what happened? To make a long story short, we cracked it. Legally, ethically. We complied with every business conduct requirement and still achieved #4 market share, profitably. Eventually, we climbed to #2.
            And the local heroes were stunned.
            Nation-state = over-rated

          • benbajarin

            I will flesh this out more later. But I do appreciate your anecdote. It is relevant and I have had similar experiences with those tech companies I have worked with in China. I will point out that it is not necessarily the Chinese OEMs or China in general that I think poses an issue for Apple. In fact, knowing what I know about the China market, I’d say to whatever degree there is backing of the nation state with OEMs it will hurt Samsung more than any going forward. I threw those in just to make a broader point.

            All of that said, I think Samsung is in a different place with how it is viewed by S. Korea and by the S. Korean people. Samsung is unlike Huawei, ZTE, Xiaomi, etc, in that they are already a global competitive force. And I would posit that the intertwining of nation and state is more severe with S. Korea and Samsung than any other company in this conversation. So for what it is worth, that one holds more weight in my mind competitively than any other.

          • Mel Gross

            That would indeed be wonderful news if we knew what company you supposedly work for. But for now, it’s just your word, and why should be take that word as truth? People say many things on the Internet, being anonymous, there’s no way we can know if what is being said is just being made up, and indeed, much of it is.

          • FinanceNotMarketing

            Fortunately, you don’t have to take my word for it. See Ben’s supporting post below. He’s narrowed his thesis.

          • Mel Gross

            Not exactly. In those countries, access to “free” cash is common. Loans from banks that not expected to be paid off. Right now, we’re seeing this in China on a very large scale. We’ve seen it in S. Korea, and before Japan’s economy went belly up, it used to be common there as well.

            European countries bail large companies out and don’t expect to be paid back. We saw this with Bull and Thompson, for example, as they create “national champions” that are inviolate. They even force companies to merge so that they become too large to be bought by outside entities. So we see Airbus receiving literally tens of billions of dollars from the various countries that own parts of them. It would be as though the US government owned large parts of most major US corporations and exerted control over what they did, and insured that they would remain solvent.

            People should learn how things function overseas. It’s very different from the way we do things here.

          • Mayson

            Suppose Apple decided to cut $100-200 off the price of the iPhone, at the same time it switches CPU production to TSMC. What would happen to sale of high-end Samsung Galaxy, and Samsung cash flow?

        • isitjustme

          Try to read the article again what Ben meant is Apple have to be financially independent.

          Aren’t you being presumptuous to assumed that Apple will need to burn through their reserves of $150B to stay competitive,

          Your argument too is baseless.

          • FinanceNotMarketing

            And what is the definition of financially independent? $50B? $150B? $500B? At some point, investors/shareholders penalize companies for hoarding cash. They begin to believe that management doesn’t know how to use the cash to the benefit of the company. And call for management to pay dividends and do stock buybacks to reward investors.

            It wasn’t MY assumption that Apple will burn through $150B, it was Ben’s assumption.

        • Mel Gross

          Actually, the argument does have merit. You can’t compare a bailout with the fact that these companies in Asia can access cash without the need to pay it back. We see similar situations in Europe.

          The laws of monopoly that apply here are not in effect in some of those countries for native companies. It’s really an uneven playing field, and I’ve been saying this for years.

          Samsung’s marketing budget last year was $14 billion. This has been documented. Apple’s was about $1 billion. While much of Samsung’s was for businesses other than those that compete with. Apple’s, it’s been estimated that that budget is about four times that of Apple.

          Where does this money come from? Well the problem is that some of Samsung’s businesses have income that’s not well understood. And that is deliberate. That couldn’t happen here.

    • TheEternalEmperor

      You must be kidding with 3. MS paid $8b for skype and that company is held as your example of shining corporate financial knowhow. The company that just took a $1b bath on unsold Surfaces is one that knows, better than Apple, how to use foreign reserves because they tossed out $7b to shore up the only company making Windows phones.

      And they didn’t even get IP or Maps in the deal.

      But Apple is in trouble. Okaaaay….

      • FinanceNotMarketing

        O please. Don’t try to take this into a Apple vs Msft food fight.

        You’re missing the point.

        By purchasing depressed assets for almost nothing, companies put their idle cash to work. The brilliance of using foreign reserves is that it has no impact on the company’s finances or stock price. So Apple is missing out.

        • benbajarin

          I do grasp this point. And yes it is a wise move with the cash. I simply pointed out the competitive point of how their competitors may be able to use cash differently based on their backing.

          Just simply food for thought. That was my goal.

        • isitjustme

          I wonder why someone people think a company must buy useless assets to prove that they are creative financially.

          I don’t see anything wrong with keep the cash in cash. They come in handy when a company needs to expand or buy something of strategic value.

          Your example of MS is making a great move by purchasing Nokia to me is kind of dumb. Kind of reminded me of Google spending a billion to buy Waze.

          A company like Apple spend its money wisely and not spend billions to buy to show they are brilliant financially.

          • FinanceNotMarketing

            Depressed assets does not mean useless. And if you can buy those depressed assets for NO financial hit, then you are getting them for ‘free’, financially speaking.

            Cash can come in handy, yes, like when MSFT buys Nokia or Intel capital spends $4.7B on European assets. And that’s the point. Apple isn’t doing that. They’re missing out.

        • TheEternalEmperor

          I love how people try to claim that others “miss” the point because they don’t agree. No, my friend, your point was blunt and obvious. And wrong.

          You brought up MS, not I. So I’m address your example head on so please don’t try to present this as some playground side-taking.

          Your example is laughable. You are suggesting that Apple should emulate a company that is literally losing billions of dollars each year. THAT is your halmark of financial prudence. Apple is making billions each year and you suggest that they are missing out or making a mistake.

          If you don’t understand how truly awful that examples, I’m not sure what else anyone could say.

          MS stock price has been flat for more than a decade. Their poor decision making has a direct impact on their stock price.

          Apple, instead of overpaying by billions for companies and then writing them off *cough*AQuantive*cough* or just plain overpaying and doing nothing, Apple instead spends much less, is much more surgical and gets more bang for the buck.

          Next. Fingerworks. Anobit. Authentic. Lala. PA Semi. Intrinsity. Siri. Poly 9. C3. How much did Apple pay combined for these companies. $2B? $3B? And these thing the stage for OS X, iPhone and iPad. Those purchases gave Apple A7, iRadio, Siri, Apple Maps.

          You tell me who spends their money more wisely and who is missing out.

          The issue is that you are way off, nearly 180. But if being wrong is your point, then yes, I missed it.

          • FinanceNotMarketing

            I enjoy seeing replies from people with Apple so far up their a$$ they can’t think straight. Case in point, you said:
            MSFT is “literally losing billions of dollars each year.”
            Fact: at 34% operating margins they outperform Apple’s 26%
            Clearly you don’t know how to read a financial statement.

            Moreover, Apple’s margins dropped by 9% in 2013 from 2012, suggesting that indeed, it is in decline and they have failed to invest their money wisely. Meanwhile, MSFT margins jumped from 30 to 34%, suggesting that not only are they investing wisely but they are doing a better job than Apple.

            Stop watching TV on your iPad and try to use it intelligently to contribute facts to this discussion.

          • TheEternalEmperor

            I know how to count, something that you may not have mastered while perusing that financial statement. MS loses billions, fires the CEO, had a debacle in HW and software and to you, the master of the financial statement, they are the shining example.

            Apple, according to you, has a margin drop that is probably due to selling cheaper products, but is in decline while having ONE product that is larger than MS, growing marketshare while MS hopes to pass Blackberry, and is sucking the oxygen out of the room by taking more than 50% of the mobile profits for a fraction of the marketshare.

            And they haven’t even released all their new products for the year. But they are in decline.

            Yes. Thanks for showing everyone how to selective read and grossly misinterpret a financial statement.

            Don’t quit your day job. Someone may need help installing an AV.

          • FinanceNotMarketing

            Why do you insist that MSFT is losing billions??? In fiscal year 2013, they earned $26+B. Moreover, MSFT’s margins are improving while Apple’s are declining.

            You still haven’t figured out how to use your iToy to get data.

            The iPad has a calculator. When you get to high school, you’ll have to learn how to use it.

          • Mel Gross

            Well Microsoft is losing billions every year in several businesses.

            The Entertainment and Devices Division is losing money, as it has since the first xbox came out. Their Internet services business is losing almost two billion a year now. They lost almost $1 billion on &900 million dollars in tablet sales. And then they stated that they had also spent about $400 million advertising those tablets.

            They are losing money on their phone OS, estimated to be several hundred million a year, and as much as a billion when advertising is included.

            What else should be mentioned?

          • FinanceNotMarketing

            I’m really trying not to talk about MSFT, it’s such a polarizing company.

            However, I feel the need to correct your statement that their Ent Division is losing money. In fact, it’s been making a profit for the past 5 years, earning nearly $1B in FY2013.

            In fact, this is a GOOD example of a company that invested for the long term, lost money in the short term as it built the business and the platforms, and then gained #1 market share and is in millions of living rooms around the world.

            Going back to Ben’s thesis, only government-backed companies would take this long view. Clearly, companies like Google and MSFT are taking a long view too and not hoarding cash.

          • DarwinPhish

            Last I checked Microsoft was still sitting on a nice pile of cash. The Nokia deal will hardly make a dent.

          • FinanceNotMarketing

            Agreed. That’s the point.

            (And I’m not talking about MSFT anymore, but making a statement about companies in general.)
            When companies are sitting on a ton of cash, they have the ability to make big purchases to accelerate their strategic plans. And it hardly makes a dent in their cash balance. And it has almost no negative impact financially when they use foreign cash reserves.

            Foreign cash reserves are a powerful tool to accelerate strategic plans. A company that sits on a pile of foreign cash reserves but doesn’t do anything with it will eventually have to take the following steps:
            1. repatriate the reserves: pay USA taxes, which destroys value by, say 20%
            2. pay dividends: taxed at the individual level, destroys value by, say, 20%

            Think about that. If you’re Apple, $36B of its $100B of off shore cash would be destroyed. Makes no sense. And investors know this. Other companies are putting their cash reserves to work. Failing to do so is dangerous.

          • pk_de_cville

            You’re overlooking Apple’s judicious ‘repatriation’ of its cash for $60B in share buy backs.

            This results in no dividend nor repatriation taxes.

            So, Apple will invest large portions of its overseas holdings in itself over the years.

            Now, that’s a very worthy investment in one of the most powerful companies in the world.

          • FinanceNotMarketing

            This is a tangent from Ben’s thesis, so feel free to skip it.

            If you use foreign profits for the buyback, you would pay taxes when you repatriate the profits. Value would be destroyed.

            And from a tax perspective, buybacks (capital gains) are taxed at the same rate as dividends, resulting in 20% lost value.

            In your scenario, Apple would convert $90B of its $100B in foreign reserves to $48B of shareholder value. This wouldn’t be seen favorably by many.

            Alternatively, put the money to work investing in technologies and companies from around the world that can strengthen Apple’s roadmap.

          • Mel Gross

            That’s not true at all. They have lost money in the Entertainment division consistently, except for a small handful of quarters. They lost over $250 million last quarter.

          • steve_wildstrom

            FinanceNotMarketing: Tech.pinions welcomes vigorous debate. We do not welcome ad hominem attacks and name calling. Please cool it a bit.

          • FinanceNotMarketing

            Of course. My apologies to those I’ve offended.

            This is a passionate topic to me because I’ve personally helped win against a ‘nation state’. So to me, the nation state argument is over rated. And I’ve offered alternative explanations for why Apple is hoarding cash, which have been vigorously attacked. Let the debate continue.

          • TheEternalEmperor

            Holy moley. You are ignorant. You are so busy trying to insult me that you don’t even understand what you are saying. If you don’t think MS is losing money in pretty much everything but Windows and Office, you clearly haven’t read their financial statements.

          • FinanceNotMarketing

            From your first comments, I knew you would take this discussion into a MSFT vs Apple food fight.

            By doing so, you miss the point of the article entirely. I’m done with you.

          • TheEternalEmperor

            No, I was addressing your point that MS is a sterling example of sound fiscal management

            I’ve given counter-examples of bad purchases and money losing ventures. I’ve given you at least 5 companies that Apple has purchased, all for less than MS paid for Nokia what benefits those purchases have provided.

            All you’ve done is shout “A$$”, “iToys” and make rather juvenile statements about whether or not I watch tv on an iPad.

            You have no meat to your arguments, so you insult and the Moderator had to step in and slap your hand because of it.

            You are a poor debater, sir, and the facts clearly don’t support your position, so you flee. Bye,

          • Mel Gross

            My oh my, you really do have problems dealing with people who see through your ignorance, don’t you?

          • TheEternalEmperor

            Maybe. But I don’t think that person is you, for you’ve pointed nothing that I said that was mistaken.

            Do you have anything useful to add or will you rant like Finance because you have no points to back you up until you get slapped down for not adding to the conversation?

          • Mel Gross

            No, it’s just people who don’t understand how companies work. The high margins Apple enjoined were margins that Apple themselves said would not reoccur. There was a happy medium of lowered parts pricing because of a slow market, new product introductions months before, and lowered marketing costs.

            Apple is sustaining 36-38% margins! and that really good these days.

          • FinanceNotMarketing

            Indeed, Apple, Samsung, Google and MSFT are enjoying margins other companies can only dream of. And Apple’s margins are higher than Samsung’s today.

            But that creates a question. With that advantage, what’s the problem? The Samsung/S Korea team doesn’t seem to be hurting Apple. Going back to Ben’s nation-state thesis, Apple is hoarding cash because it needs the cash to win vs Samsung/S Korea in the long run. I don’t see the connection.

            I would argue that by hoarding cash and not making strategic investments, especially with its foreign reserves, Apple WILL lose out to competitors, Samsung and others too.

          • Mel Gross

            Certainly they’re hurting Apple. Do you really think that without all that marketing they would sell as much product? Of course, without copying everything Apple does, they wouldn’t be doing nearly as well either.

          • steve_wildstrom

            It makes very little sense to compare the operating margins of Apple and Microsoft because if the very different nature of their businesses. Microsoft is a software company, a business where gross margins are extremely high because the cost of goods purchased is extremely low. Apple is a manufacturing company and 26% net margins are spectacular if your business is making things.

          • FinanceNotMarketing

            I agree. It’s not central to Ben’s thesis. I’ve mentioned Google, Intel, MSFT, but the only company this forum wants to discuss is MSFT. And correcting inaccurate statements becomes part of the discussion.

            More importantly, going back to Ben’s thesis, I’ve asked several times but no one seems to be able to support Ben’s nation-state thesis with facts, anecdotes or credible hypotheses. I’ve even offered a personal anecdote which suggests that ‘nation-state’ is over rated, to which Ben agreed and modified his thesis.

            If there’s no evidence or credible hypothesis, the thesis fails. That’s my verdict at this point.

          • pk_de_cville

            You must remember Passif as its technology will provide considerable benefit in Apple’s wearables.

  • Omar

    Could it be that Cook just doesn’t know what to do with all the cash?

    • qka

      Accumulating cash, Tim is continuing what Steve started. Although, Tim started the stock buyback that it is my understanding that Steve would have thought an anathema.

    • pharoah

      Apple is swimming in their money vault during record unemployment and financial crisis. They are laughing as people suffer, and their fans cheer at their record profits. Apple represents the triumph of greed and cynicism. http://www.youtube.com/watch?v=htX2usfqMEs

  • Gary Brockie

    Really makes good sense. Carl Icahn just wants to raid Apple’s bank in the short term. He could care less about Apple’s long term.

  • steve_wildstrom

    Back in the 1980s and 90s, when Japan was rising high, U.S. companies frequently pointed to two sources of what they regarded as unfair competition. One was that Japanese investors were prepared to accept lower rates of return than American investors, so Japanese companies could afford to price low and take a hit on earnings. The other was the protectionist policies of the Ministry of International Trade and Industry.

    Both may have been true, but neither worked out very well in the end for the Japanese. (MITI famously tried to prevent Honda from selling cars in the U.S. to protect the market for Toyota and Nissan. Honda got around this by building cars in North America instead.)

    Analysis of Apple vs. Korean and Chinese phone makers should keep this history in mind.

    • FinanceNotMarketing

      Good point. I had also thought about the lessons learned from the Japan era. A critical part of Japan Inc’s success was the low yen value. In Samsung’s case, they have taken a different approach, dominate fundamental horizontal platforms that insert them into a broad range of businesses. How much of that success is connected to Ben’s nation-state thesis?

      • steve_wildstrom

        I think it has a lot to do with the Korean chaebol concept. But I leave the question of the relationship of this form of industrial organization to the nature of the Korean state to those more knowledgable about Korea than I.

        • FinanceNotMarketing

          I would like to understand more about it, too. Specifically, going back to Ben’s thesis, why is the Korean chaebol so formidable that:
          1. Apple is hoarding cash in direct response, and

          2. Korea’s chaebol is far superior to both Japan’s keiretsu and China’s system, both of which became vulnerable over time

          As an alternate suggestion on this specific topic, I would offer that Korea, like Taiwan, has figured out how to successfully partner with China and capitalize on its vast resources more effectively than, say, Japan. Japan’s lost decade coincided with both China’s and Korea’s rise because of the enormous impact the shift of manufacturing to China had. In other words, China’s rising tide lifted Korea’s boats.

  • JAME

    It sounds a little racist to imply Korean companies are up to no good. You have not given evidence to your accusations. The Korea have rapidly expanded their economy and should be applauded. To just finger point and shout chaebol chaebol is unseemly. These insinuations without proof are derived of McCarthy tactics.

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